Investment Bank Analyst Programs May Not Survive the Current Turmoil

Investment Banks are famous (or perhaps infamous) for their analyst programs.  The premise of these programs has long been suspect if you examined the facts carefully.  Now, with the Wall Street and legislative meltdowns, investment banks must truly re-think the analyst position.

Since the early 70’s, investment banks grew their analyst programs, high paying but physically demanding employment programs that provide entry-level experience for the very best graduates of top tier colleges and universities.  A theory existed to justify the 100-hour weeks: employees got high pay, great experience, and a career path to banker; banks got the analytic horsepower they needed.

Several trends, however, undermine the theory.   First, banks face increasing competition from other high-paying financial positions in hedge funds and private equity firms.    Second, recent graduates now want lifestyle balance more than bragging rights to working the most hours.  This makes it hard to recruit the same quality of candidates.  And third, earlier traumatic events – specifically industry-wide retractions of offers to analysts immediately following 9/11 – raised doubts for some candidates.

So analyst-employees have been questioning the theory for some time.  So too should the bankers and deal makers.  They complain about analysts’ outputs and resent the re-work often required.  Further, if they really understood the cost per analyst, they might have more than second thoughts.  My back of the envelope calculation is that each analyst costs $250,000 per year.

Now comes a crisis many compare to the Great Depression.  Can investment banks realistically maintain the analyst programs as they have existed?  The trends described above were bad enough.  Now, with the increased economic pressure on newly reformed I-Banks, can they still afford to pay hundreds of millions of dollars for these programs?

Does Wall Street have alternatives?  Absolutely.  In fact, Wall Street has been investing in these alternatives for years… automation, outsourcing, and improved market data services among others.  These initiatives, however, focused on tweaking rather than re-thinking the role of the analyst.  Today, the new shape of Wall Street is a pretty good indication that analyst programs need to become much more aggressive in defining the real requirements and then cutting the cost of delivery.

Now is the time for a real re-think: what analytic outputs do bankers actually need; how should banks recruit or groom future deal makers; and what combination of human and automated resources will best meet 21st Century needs.

The bank(s) that get this right can gain a tremendous competitive edge.  It’s not just about saving money, it’s about creating a well-oiled machine that can pitch and win the most and the best deals, whatever those deals may look like post-crisis.

The Impact of a US Economic Downturn on Knowledge Process Outsourcing (KPO)

Several articles have recently suggested that the likely recession in the US will be bad for the outsourcing industry. In our view, the economic uncertainty is a dual-edged sword with more positives than negatives. Integreon may experience some negative news from some customers but the unsettled economy increases our opportunities. Two factors will determine the overall impact for our knowledge process outsourcing.

On the one hand, the slowdown negatively affects our clients. In some instances, this may mean less business for us. This is likely true where (1) Integreon and other KPO penetration is already at a very high level or (2) client spending on KPO services is discretionary and does not add to enterprise profits for the clients. This negative affect, however, may be tempered by our clients deciding to compete harder for the smaller pool of available business (e.g., “let’s do more pitch books” or “we need to provide more value at the same price to keep customers”).

On the other hand, the slowdown forces our clients and prospective clients to seek better value propositions to protect or improve their profits. They will turn to Integreon services to benefit from the offshore cost, efficiency, and expertise arbitrage.

On balance, I think that the drive to win business, to increase value, and to reduce cost are likely to outweigh for Integreon and other KPOs what may be a decline in overall economic activity in the US.